January 2013 - Editorial

The current crisis has highlighted the need for funding social projects in Europe, especially as the European debt crisis is forcing governments to cut back or freeze their subsidies.

Social economy players are therefore having to adapt and to develop new strategies of funding and/or growth, a situation that has led some of them, so-called “social entrepreneurs”, to develop a business model that is at once socially responsible and sustainable, because it is profitable.

These entrepreneurs are developing strategies very similar to those of small and very small businesses. They also need the same type of funding and support so as to meet their financial and non-financial targets. The financing strategy included in these business models is not limited to donations and subsidies, even though many social companies have hybrid models in which these sources of funding play a part.

The European Union has latched on to this trend, and legislators in Brussels, aware of the need to provide these companies with ongoing support if they are to meet the current needs of society, are currently working on a “social business act”, to be introduced with the 2014 budget, which will establish a major system for funding social enterprises. The new measures will be coordinated with the current system of subsidies and donations for associations.

PhiTrust specialises in funding and support for social enterprises. However, in Europe there are still too few institutional investors willing to invest in these companies, and frequently we come up against arguments concerning liquidity, track record etc. and other excuses on the grounds that such investments are risky and offer poor mid-term prospects. The sector is clearly being held back by widespread ignorance concerning the appropriate investment philosophy and related risks, as bankers and investors regard social enterprises as being “more risky” than normal companies. On the contrary, the risks incurred by financing social enterprises are actually lower than those applicable to standard companies, mainly because the expected return is lower (thus confirming the correlation between risk and expected reward).

Evidently, banks and financial advisors are failing to realise that we are not just talking about donations to charity: some social enterprises are capable of rapid growth, if they have the human and financial wherewithal, and to achieve this growth, they don’t need charity, they need financing just like any other company, even if their raison d’être is primarily social. And as far as financing is concerned, investing is better than giving!

This “cultural” issue is crucial for the funding of such companies, at a time when governments are pulling out, and for the sector as a whole.

Olivier de Guerre

Chairman of PhiTrust Partenaires

olivier.deguerre@phitrust.com